Q&A: Why Vietnam Is Preparing to Open Its Property Sector

Residential buildings under construction loom over a polluted canal in a newly developed area of Hanoi on June 21. Vietnam’s property market has weakened recently after years of strong growth, causing government officials to consider changing regulations to allow more foreigners to enter.

HANOI _ As growth in Vietnam’s property sector has started to sputter, government officials seeking new ways to attract investors have proposed opening the local property market wider to foreigners.

In August the Ministry of Construction proposed that all foreigners who have a visa to enter Vietnam for more than three months be allowed to buy houses. Lawmakers are also preparing to debate changes to a land law that would allow foreign developers to lease land for housing projects.

Officials at the ministry say the change is needed to encourage foreign developers to enter the market, since most local firms are hampered by debts, and don’t have the capital to continue developing big projects.

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The supply of apartments and luxury homes in Vietnam has started to outpace demand and construction on hundreds of new office buildings has been stopped due to unpaid bills.

In addition, some of the biggest local property developers say they are putting their money into other countries, such as Myanmar, rather than continue investing in a market where sales are slowing.

In July the government said it would provide financial assistance to low-income buyers and has offered low interest rates on mortgage loans to help stimulate purchases.

But foreigners have stayed largely outside the market, in part because of policies that discourage them from developing property projects or making individual purchases.

Dang Hung Vo, the former deputy minister of national resources and environment, the office responsible for land management in Vietnam, and now an independent property analyst, recently spoke to The Wall Street Journal’s Nguyen Pham Muoi about how the government is preparing to encourage foreign investment in the property sector.

Edited excerpts to follow.

The Wall Street Journal: Why should Vietnam open its property market to foreigners?

Dang Hung Vo

Dang Hung Vo, the former deputy minister of national resources and environment and now an independent property analyst, talks about how the government is preparing to encourage foreign investment in the property sector.

Mr. Vo: Globalization is becoming more of a reality, and national boundaries will become less preventive to human mobility. Thanks to the development of telecommunication technology and the Internet, people will become more mobile. Now, many countries allow free-visa travel, and in the not very distant future, there is a possibility of free-visa access on a global scale. By then, people will have the right to have a home anywhere in the world. That globalization will have huge impact on the property market.

Right now in Vietnam, the government is preparing to amend the Land Law. Among the proposals for change are those related to [foreign] ownership of land and property.

[Under] the land law of 1993, there was a special chapter about the right and obligation of foreign organizations and foreigners to lease land in Vietnam. In the land law of 2003, this chapter was removed, giving the foreigners and local people the same treatment. In 2008, the National Assembly approved a decree allowing foreigners to buy flats and apartments in the country.

In the latest draft land law, which is expected to soon be ratified by lawmakers, there will be stipulation to let foreigners receive land to develop housing projects, and the Ministry of Construction is also proposing a new policy to allow foreigners to buy land and houses for living and leasing.

All these steps have indicated the government of Vietnam is ready to open the domestic property market. You [will] see more changes in Vietnam’s land management policies, and more open regulations to allow easier access to foreigners in the next year.

What measures will Vietnam focus on what measures to attract foreign investment into the property market ? why?

Before 1998, foreign investors weren’t allowed to enter the domestic property market. From 1998, the government let them to take part in two projects — Phu My Hung in Ho Chi Minh City and Ciputra in Hanoi [two large housing projects built by foreign firms and then sold to local buyers]. In 2008 the Vietnamese government issued a decree to provide foreign investors with the same access as local investors to the property market.

As a result, foreign direct investment in the property market rose fast, reaching $5.5 billion in the first three months of 2008 — equivalent to all of 2007. From 2006 to 2010, FDI into the property market accounted for 75% of [Vietnam's] total FDI. Although the market [has weakened], by the end of August foreigners had put $48.23 billion into 400 property projects across the country, making it the second highest after the manufacturing sector in terms of FDI. That indicates that the local property market is very attractive to foreign investors.

The key factor [needed] is a number of open, stable policies from the Vietnamese government.

What such policies does the Vietnamese government currently implement?

Vietnam has signed a number of international treaties, including a bilateral trade agreement with the U.S., and currently it is negotiating to join the free-trade agreement of the Tran-Pacific Partnership. The country is committed to carrying out the long-term policies of openness to support foreign investors.

How has the Vietnamese government supported the property market?

So far the government has issued Resolution No. 2, which outlines five main measures to help the market.

The first focuses on the reduction of land leasing taxes and costs.

Secondly, the government is providing a financial package of VND30 trillion [$1.42 billion] to help boost sales among low-cost housing projects.

Thirdly, the government has set up an asset management company aimed at helping clean up bad debts [belonging to] property companies at banks.

Fourthly, local authorities are revising their real estate development plans and will limit the construction and supply of commercial property projects, while encouraging low-cost housing projects.

Fifthly, the government is re-examining policies and regulations to restructure the property sector.

Do you have any forecast for property prices in Vietnam in the next few years?

As the land fever has ended and hot speculative flows have left the market, housing prices are expected to fall significantly in the next few years. The price of flats and apartments will fall fastest, to as low as VND10 million [$475] per square meter [from a low of WND 20 million now], while the price of street front houses will slide slower.

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